Asked by Jennifer Tunstall on Sep 24, 2024
Verified
When a transfer price decreases
A) the profits of the division producing the intermediate product will rise
B) the profits of the division producing the intermediate product will fall
C) the costs of the division producing the intermediate product will rise
D) the costs of the division producing the intermediate product will fall
Transfer Price
The price at which goods or services are sold between divisions within the same company.
Division Producing
A specialized unit within a company focused on manufacturing or outputting specific products or services.
Intermediate Product
An intermediate product refers to a good or service that is utilized in the production process of another good or service, rather than being sold directly to consumers.
- Evaluate the consequences of transfer price modifications on the financial health of divisions.
Verified Answer
KP
Kevin Patidar1 day ago
Final Answer :
B
Explanation :
When the transfer price decreases, the division producing the intermediate product will receive less revenue for the product sold to the other division. This will lead to a decrease in the profits of the division producing the intermediate product.
Learning Objectives
- Evaluate the consequences of transfer price modifications on the financial health of divisions.